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Cloud Nine

Posted November 19, 2021 at 10:00 am

What’s going on?

Nvidia reported better-than-expected quarterly earnings earlier this week, and the US chipmaker sure is in bright spirits about its remarkably cloudy-looking forecast.

What does this mean?

Nvidia made a name for itself by manufacturing graphics chips for gamers. That’s still the biggest part of its business today, so it’s a promising sign that the segment’s sales grew 42% last quarter compared to the same time last year. But it was Nvidia’s data center business – which sells cloud computing chips – that really impressed investors: its sales grew by a better-than-expected 55% last quarter. That helped boost the company’s revenue by 50% to a record high of $7 billion. Nvidia seems optimistic about the future too, giving a higher-than-expected revenue forecast for this quarter. Investors didn’t need telling twice: they sent its shares up 10%.

Why should I care?

For markets: Nvidia’s found its niche.

Nvidia’s share price has more than doubled this year, bringing its market value to around $800 billion. That’s over three times as much as that of rival chipmaker Intel, even though Intel’s yearly revenue is three times higher than Nvidia’s. Investors, after all, value growth above all things, and Nvidia has that locked down: its chips are far better suited than Intel’s to artificial intelligence, which is one of the fastest-growing areas of the cloud industry. That might be why Nvidia’s quarterly revenue has grown by 56% on average over the last two years, versus Intel’s measly 4%.

Zooming out: Life isn’t fair.

Sweet results or no, Nvidia’s probably a little bitter right now: the firm’s been trying to acquire British chip designer ARM for over a year, but Europe opened a potentially deal-scuppering investigation into the transaction last month. And it wasn’t done there, saying this week that it’s also looking to subsidize European chipmakers in a bid to ease the supply crisis – a move that would give them an unfair advantage over non-European chipmakers like Nvidia.

Originally Posted on November 18, 2021 – Cloud Nine

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